Coalition Senators' additional comments

Introduction

1.1The Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Bill 2024(‘the Bill’) highlights some of the Albanese Government’s key failings. First, this Government fundamentally misunderstands the financial services sector. Second, its chaotic attempts at tax reform continue to have unintended consequences and create uncertainty for businesses. Third, it cannot help but reward its vested interests, instead of focusing on the issues hurting Australians most.

1.2These Coalition Senators’ Additional Comments will address and provide recommendations to Schedules 2, 4, 5 and 7 of the Bill.

Schedule 2: Buy now, pay later

1.3The Buy Now, Pay Later (‘BNPL’) sector contributes $19 billion in economic activity every year and supports over 120 000 jobs for Australians. 5.2 million Australians choose to engage with BNPL products to manage their finances.

1.4Under the former Coalition Government, we saw the emergence of globally successful BNPL companies like Afterpay and Zip.co. They were able to prosper largely because the former Government understood the importance of innovation and the importance of stable regulatory settings. Unfortunately, we are unlikely to see the next Afterpay or Zip.co under the Albanese Government because innovation has been put on the back-burner.

1.5Coalition senators understand that the BNPL sector is generally supportive of codifying an industry code. It has been widely noted, however, that any new regulation must be scalable, proportionate, and allow the products to remain accessible to consumers.

1.6In March 2021, the BNPL sector adopted the Buy Now Pay Later Code of Practice (‘the Code’), a self-regulatory approach praised by the Australian Financial Industry Association (‘AFIA’) as “world’s first”.[1]

As I said in my opening remarks, it was a world's first a few years ago. … It has also influenced international standards, which I think Australia should be proud of. It has not only invented the BNPL sector itself but also been influencing how things are being managed from a regulation and industry standards perspective. As industries evolve and develop, you expect good codes of practice being able to lead to the first iteration of law, and that's what we're seeing here.[2]

1.7In the last parliament, the Select Committee on Financial Technology and Regulatory Technology found that the Code was functioning well:

The committee considers that in many instances, industry self-regulation can be an efficient way for innovative products in the financial services sector to emerge, while ensuring adequate protections for consumers.

The development of an industry code of practice in the Buy Now Pay Later (BNPL) sector is an example of where industry is working constructively to respond to stakeholder concerns and seek to achieve appropriate regulation that benefits consumers.

The committee considers that the Australian Government should support initiatives where self-regulation can be utilised appropriately in financial services.

Because innovation like BNPL often occurs on the fringes of regulation, it is inappropriate to force each innovation into a one size fits all approach.[3]

1.8The Committee therefore recommended that “the Australian Government establish a culture of innovation and competition in financial services by supporting self-regulation where innovative products emerge, whilst ensuring strong consumer protection.”[4]

1.9In December 2021, the former Government noted the importance of the Code remaining up-to-date, and announced that it would determine any changes necessary to modernise payment system legislation by mid-2022.[5]

1.10Prior to the last election, the then Shadow Financial Services Minister Stephen Jones said that Labor would “let [the Code] run for a period of time” and “probably end up codifying the code”.[6] What is before the Committee is the Government’s attempt to codify the Code.

1.11This Bill unfortunately comes over 12 months after the Assistant Treasurer had promised. These delays have created regulatory uncertainty for the sector, but are what the sector has come to expect from a Government that isn’t interested in key financial services reform. The Bill also comes light on detail. As always, the devil is in the details when it comes to getting any regulation right. The key details for these reforms are not in this Bill, but rather they are in the delegated regulations.

1.12At the public hearing, AFIA noted that the regulations hadn’t been released yet:

[T]here is some detail that's still to come. The regulations haven't been released yet, so we’re conscious that there's a bit more to go on this. As always, the devil is in the detail, so we're very keen to make sure that we do consult on those regulations. Some important technical issues will be in those regs in relation to how the legislation will translate in practice, so we'll be keen to make sure that we work with our members and stakeholders to make sure that they work as well.[7]

1.13Witnesses also emphasised the importance of a tailored approach that acknowledges the diversity in the BNPL sector:

But as we get through to the regulations and really explore fee caps there, I think the most important thing is to make sure that we acknowledge the diversity of the sector. As my legal colleagues have just outlined, the business models for low-value-low-risk products are very different from those for higher value products, so we just need to be careful that we don't hit an own goal there and make this product difficult across that spectrum.[8]

1.14On notice, the Tech Council of Australia noted that “ongoing consultation is required for the BNPL regulations, as they contain critical obligations and substantive information that have a significant impact on the BNPL sector.”[9] Furthermore, the Tech Council outlined the importance of the regulations with respect to various obligations in the Bill that have created concerns in the industry:

The requirements in the delegated legislation cover late fees, ongoing fees, and the scalability of the modified responsible lending obligations. These requirements cannot be debated in the Parliament, however, they contain significant obligations and represent some of the most concerns raised by industry. For example, the current drafting of the late fee caps are unworkable for many BNPL providers while the modified responsible lending obligations lack scalability, particularly for lower value BNPL products.

We support the BNPL industry’s call for a more detailed consultation on a final version of the regulations.[10]

1.15FinTech Australia told the Committee that ongoing consultation on these critical obligations, in addition to aligning the requirements with New Zealand’s successful regime, would be critical to ensure the regime “preserves these benefits of greater competition, choice and consumer protection”.[11]

1.16That Treasury conduct a more detailed consultation on delegated legislation that accompanies the Bill, including to address duplicative fee caps and opportunities to harmonise modified responsible lending obligations with New Zealand’s BNPL regulatory framework.

Schedule 4: Multinational tax transparency – country by country reporting

1.17Coalition senators support the aim of ensuring tax transparency and accountability for multinationals. The former Government consistently delivered lower taxes for small businesses and families, and implemented more than a dozen measures to address multinational tax avoidance. Coalition senators note that the Government’s last multinational tax bill was so poorly designed that it managed to tax Australian companies.

1.18Schedule 4 of the Bill is another example of the Labor Government’s chaotic approach to tax reform. These measures were supposed to enter Parliament last September. The Government embarrassingly scrapped the Bill at last minute in response to extensive stakeholder backlash, including from the United States Embassy.

1.19The Labor Government’s chaotic approach to tax transparency reforms have created uncertainty and confusion for Australian businesses. As the Australian Chamber of Commerce and Industry (‘ACCI’) noted:

The clumsy approach to the introduction of the Multinational Tax Transparency – CbCR created considerable uncertainty and confusion for businesses.

Business was greatly alarmed by elements of the initial exposure drafts that went beyond the original intent of the OECD Standard and that of other major jurisdictions such as the EU CbCR Disclosure.[12]

1.20Despite the Government promising to do so, it has failed to come back to the Parliament with a revised regime that aligns with international standards and addresses widespread stakeholder concerns. The United States Securities Industry & Financial Markets Association Asset Management Group offered the following assessment:

Our key concern is that this legislation continues to diverge from international norms and in ways that do not address the policy intent of improving tax transparency and yet would diminish the international competitiveness of Australia to cross-border investors.[13]

1.21The Government’s proposed country-by-country reporting regime goes beyond what other comparable jurisdictions have legislated, such as the European Union (‘EU’). Aligning Australian standards with those of our international partners is critical to attracting investment. The Committee heard that:

[A]s a mid-sized economy that values foreign investment, it is essential that legislation, particularly one that specifically applies to multinational companies, is aligned with that of our international partners. In this regard, we note that the Country-by-country tax reporting legislation as it currently reads, is out of step with the approach of both the USA and the EU.[14]

Stakeholders remain concerned about the absence of safeguards for the sharing of sensitive information. Witnesses told the Committee that the Bill could force the disclosure of confidential information relevant to national security or commercially sensitive data:

Because of the nature of the work undertaken in the defence industry and the need to keep information strictly confidential for national security reasons, compliance of defence industry entities with the proposed country by country regime would require disclosure of sensitive information. …

It is crucial that Australia not isolate itself from the international community, rather that it fosters commercial productivity while protecting national security.

While the proposed legislation allows for Ministerial discretion in relation to exceptions, we do not believe that this provides firms with sufficient certainty or confidence that they can meet their obligations for report and confidentiality.[15]

1.22On the potential consequences for private businesses, SC Johnson noted:

For private companies, the confidentiality of financial information is a key competitive advantage and vital to making generational investments in a country. Having these decisions and related financial data published on a government website promotes anti-competitive behavior, enables larger publicly traded companies and companies without investments in Australia to counter these investments for their short term advantage. We are concerned that the Legislation will force SC Johnson to disclose sensitive information such as sales, profitability, level of investment and other information that is available to the tax authorities today, but not to interested competitors.[16]

1.23It is unclear how the Australian Taxation Office (‘ATO’) exemption process provided in Schedule 4 would operate. Witnesses called for greater detail around how entities would go about applying for an exemption, what eligibility requirements they would have to meet, or what criteria the ATO would apply in considering applications.[17]

1.24The National Foreign Trade Council submitted that without predictable and clear exemptions, “disclosures could harm the competitive position of businesses… eventually resulting in market distortions and divestment”.[18]

1.25To address some of these concerns, the Committee heard a proposal to introduce a 5-year deferral period for commercially sensitive data that would mirror the option in the EU Public CBC Directive:

Amending the Legislation to allow companies to elect a 5-year deferral to disclose information it deems competitively sensitive supports the government's transparency goals while providing the needed clarity and predictability for current and future investors. It also provides the government and ATO a natural transition period to develop guidelines for administering this important exemption which represents the only safeguard in the Legislation against harmful economic impacts. …

The 5-year deferral option was a cornerstone of how the EU met that objective. There is little reason for Australia not to include a similar safeguard here. Deferring discretion to the ATO does not provide the needed certainty, especially when one of the government's main goals of discouraging profit shifting was largely solved by the OECD's 15% minimum tax recently adopted in over one hundred countries, including Australia.[19]

1.26Witnesses also emphasised that the proposed list of non-cooperative jurisdictions is once again inconsistent with globally accepted standards.

1.27The proposed jurisdiction list for Australia includes 41 countries, in contrast with the EU’s CbCr Disclosure, which sets out only 22. The EU’s listing process is based on an objective and verifiable criteria. The proposed list before us includes Switzerland, Singapore and Hong Kong, each of whom are members of the Organisation for Economic Co-operation and Development’s Global Forum on Transparency and the Exchange of Information for Tax Purposes.

1.28ACCI noted the need for clear guidance or prerequisites for listing or delisting of countries, in line with the EU approach, “for the ease in reporting for companies and to ensure a coherent approach.”[20]

1.29The Australian Financial Markets Association explained the rigour in the EU’s approach:

Broadly, the EU list is sourced from the jurisdictions that the EU has placed on the greylist or black-list for non-cooperative jurisdictions. These lists are compiled with significant rigour, with the EU willing, where appropriate, to remove jurisdictions from the list where such jurisdictions evidence co-operation in terms of transparency and information exchange. A recent example of a jurisdiction being removed from an EU list was Hong Kong, which was removed in January 2024 for updating its Foreign Sourced Income Exemption regime such that it no longer qualifies as a harmful tax practice. The enhanced robustness of Hong Kong’s tax regime should also be reflected in Australia’s reporting requirements.[21]

1.30Finally, the Tax Institute recommended that the Government commit to conducting a post-implementation regime of the reporting regime within a year or two of the commencement.[22] Coalition senators agree that this is the appropriate approach, given the significant impact of and technicalities involved in this measure.

1.31That the Bill be amended to align the proposed country-by-country reporting standards to globally recognised standards, including by:

a)Including a 5-year deferral period to protect commercially sensitive information;

b)Providing further detail on how the ATO’s discretionary exemption would operate;

c)Aligning the non-cooperative jurisdiction list with the EU Directive;

d)Providing further detail on how jurisdictions will be listed or delisted; and

e)Reviewing the regime within one to two years of its commencement.

Schedule 5: Deductible gift recipients

1.32The Government should not be granting deductible gift recipient (‘DGR’) status to political campaign groups to serve its own vested interests.

1.33Schedule 5 of this Bill proposes providing DGR status to the International Campaign to Abolish Nuclear Weapons, Australia Inc. This body has campaigned against nuclear power in Australia, and Australia’s acquisition of nuclear-powered submarines under the AUKUS partnership.[23]

1.34Coalition senators support Australia’s status as a signatory to the Treaty on the Non-Proliferation of Nuclear Weapons. However, the Government should not be subsidising political campaign groups who are using opposition to nuclear weapons to mask their campaign against nuclear energy and AUKUS.

1.35Coalition senators also believe that this Bill presents an important opportunity to rectify another inappropriate grant of DGR status in relation to the Smart Energy Council. As with the International Campaign to Abolish Nuclear Weapons, Australia Inc., the Smart Energy Council is a political campaign group. The Smart Energy Council is a charity that trades under the legal entity the Australian Solar Energy Society Ltd.

1.36The Smart Energy Council’s affiliate private company, Smart Voting Pty Ltd, actively campaigned against the Coalition at the 2022 Federal Election, going so far as to print “tens of thousands of wheelie bin stickers calling on voters to ‘Chuck Them Out’ or ‘Put Him in the Bin’ alongside images of Scott Morrison and Barnaby Joyce.”[24] Its Chief Executive also appeared at functions alongside Climate 200 and Greens candidates.

1.37During the election, the Smart Energy Council claimed that Smart Voting Pty Ltd had “no affiliation with the Smart Energy Council” and that “Simon Holmes à Court is not connected to Smart Voting Pty Ltd”.[25] These statements are clearly false, as the Australian Electoral Commission (AEC) returns of Smart Voting Pty Ltd reveal that it only received donations from the Smart Energy Council and Simon Holmes a Court’s Climate 200.[26]

1.38These activities go well beyond advocacy for particular policy measures and appear to be focused on promoting a political party, its agenda and its candidates, a prohibited purpose under the Charities Act 2013 (Cth).

1.39Charities are charities, they are not political parties. When organisations seek to act like political parties, it is appropriate that they lose the benefits of DGR status. DGR status exists to encourage philanthropy and support the not-for-profit sector, in areas such as health, education or research. The peddling of this Government’s political agenda does not come under this core purpose.

1.40That the Government should demonstrate why the Smart Energy Council is worthy of DGR status, and explain how it has satisfied itself that it does not exist solely for political purposes.

1.41That the Government should demonstrate why the International Campaign to Abolish Nuclear Weapons, Australia Inc is worthy of DGR status, and explain how it has satisfied itself that it does not exist solely for political purposes, before a grant of DGR status should be made.

Schedule 7: $20 000 instant asset write-off for small business entities

1.42Coalition senators reiterate the view taken in their Additional Comments tabled together with the Committee’s report on Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023.[27]

1.43Coalition senators note that the Government voted eight times against delivering a bigger tax cut to small business in last year’s instant asset write-off by opposing the Senate’s raising of the threshold to $30 000.[28]

1.44Since the election, Australians are paying 20 per cent more income tax and the Government has banked over $60 billion in bracket creep.

1.45Despite promising only to raise taxes on multinationals at the last election, the Government has broken promises to raise taxes on superannuation, on unrealised capital gains, on franking credits, personal income tax, and to end small business tax incentives.

[W]e maintain that making the write-off a permanent measure would avoid the uncertainty created for small businesses should the requisite legislation be held up by the Parliament again. Permanency of the measure will also encourage longer-term planning by small businesses and will support continuous and sustainable business growth. If the Government were serious about providing stability and certainty for business investment, they would make the measure permanent. Business investment is a catalyst for productivity growth and major driver of economic activity. It allows for the purchase of things such as new technologies, which boosts productivity through skills development and innovation. Incentives aimed at encouraging investments from businesses, especially small businesses, are crucial during times of slowing economic activity.[29]

1.46At the public hearing ACCI said the threshold of $20 000 was insignificant compared to earlier iterations of the instant asset write-off (‘IAWO’):

When it was established originally, I think it was $20,000 and was then increased to $30, 000 and, during COVID, I think it was increased to $50,000 and then morphed into the temporary full expensing; so it has had a number of different thresholds. But I suppose, from an ACCI perspective, we see $20,000 as being only a very small amount for small businesses to be able to claim. For example, for a restaurant, at best, you could purchase a new fridge, a new stove or the like with it.[30]

1.47Furthermore, ACCI reiterated that it has taken the position previously that the IAWO should be raised to $30 000, to create productivity growth:

ACCI's position in recent times has been that it should be raised to $30,000 … That is because, with business investment having slowed for many years, we're at a point in Australia now where our productivity growth has actually been contracting in recent years and we need that business investment to create the productivity growth so that we can get strong economic growth occurring.[31]

1.48CPA Australia submitted that the IAWO “threshold period should be permanent to give businesses certainty in their investments”.[32]

1.49The Tax Institute agreed, saying “that a permanent increase in the IAWO is required”.[33] They further agreed that the threshold should be raised to $30 000 to provide stability and certainty:

Further, we support the Senate’s position and consider that the IAWO should be … for assets costing less than $30 000.[34]

1.50Schedule 7 of this bill continues Labor's attempts to decimate the instant asset write-off, taking it back to levels not seen since 2018 and depriving 26,500 medium-size businesses of access to accelerated depreciation.

1.51Coalition senators believe the IAWO threshold should be permanently increased to $30 000 as a downpayment on further tax reform that supports small business and families. This would simplify depreciation for millions of small businesses by cutting red tape, boosting investment in productive assets and lowering business costs and prices. It would provide small businesses with regulatory certainty and, importantly, would ensure the government can't leave extending the IAWO until the last minute, as it did for the 2023-24 financial year.

1.52That the instant asset write-off threshold be increased to $30 000 and be made permanent, to restore the business investment incentive policy to 2019–20 levels.

Footnotes

[1]Ms Diane Tate, CEO, Australian Finance Industry Association, Committee Hansard, 24 July 2024, p. 11.

[2]Ms Diane Tate, CEO, Australian Finance Industry Association, Committee Hansard, 24 July 2024, p. 11.

[3]Select Committee on Australia as a Technology and Financial Centre, Interim Report, September 2020, p. 216.

[4]Select Committee on Australia as a Technology and Financial Centre, Interim Report, September 2020, pp. 216-7.

[5]Treasury, ‘Transforming Australia’s Payments System’, Government response, 8 December 2021.

[6]Jarni Blakkarly, ‘Coalition of consumer groups calls for the next Parliament to regulate BNPL’, CHOICE, 12 May 2022, <https://www.choice.com.au/money/credit-cards-and-loans/personal-loans/articles/bnpl-open-letter>.

[7]Ms Diane Tate, CEO, Australian Finance Industry Association, Committee Hansard, 24 July 2024, p. 9.

[8]Ms Jaime Lumsden, Partner, Hamilton Locke, Committee Hansard, 24 July 2024, p. 11.

[9]Tech Council of Australia: 001 - Answers to Written Questions on Notice Asked by Senator Andrew Bragg on 24 July 2024 - BNPL Regulation (received 29 July 2024), p. 2.

[10]Tech Council of Australia: 001 - Answers to Written Questions on Notice Asked by Senator Andrew Bragg on 24 July 2024 - BNPL Regulation (received 29 July 2024), p. 2.

[11]Mr Michael Saadat, International Head of Public Policy, Block, Committee Hansard, 24 July 2024, p. 5.

[12]Australian Chamber of Commerce and Industry: 001 - Answers to Written Questions on Notice Asked by Senator Andrew Bragg on 24 July 2024 - Reporting Regimes (received 29 July 2024), p. 2.

[13]United States Securities Industry & Financial Markets Association Asset Management Group, Submission 1, p. 1.

[14]Ai Group, Submission 24, p. 1.

[15]Ai Group, Submission 24, p. 1.

[16]SC Johnson, Submission 5, pp. 1–2.

[17]Australian Chamber of Commerce and Industry, Submission 10, p. 2.

[18]National Foreign Trade Council, Submission 17, p. 2.

[19]SC Johnson, Submission 5, p. 2.

[20]Australian Chamber of Commerce and Industry, Submission 10, p. 2.

[21]Australian Financial Markets Association, Submission 13, p. 3.

[22]The Tax Institute, Submission 21, p.5.

[23]ICAN Australia, Submission to Senate Foreign Affairs, Defence and Trade Legislation Committee Inquiry into Australian Naval Nuclear Power Safety Bill 2023 [Provisions] and Australian Naval Nuclear Power Safety (Transitional Provisions) Bill 2023 [Provisions], 1 February 2024.

[24]Mark Di Stefano, ‘Simon Holmes a Court and the energy charity shell game’, The Australian Financial Review, 24 June 2024, <https://www.afr.com/rear-window/simon-holmes-a-court-and-the-energy-charity-shell-game-20240624-p5jo9o>.

[25]Smart Energy Council, Statement on Incorrect Reports in News Ltd media’, Media Release, 15 May 2022, <‘https://smartenergy.org.au/articles/statement-on-incorrect-reports-in-news-ltd-media/ >.

[26]Australian Electoral Commission, Smart Voting Pty Ltd - 2021-22 Significant Third Party Return, <https://transparency.azure.aec.gov.au/AnnualSignificantThirdParty/ReturnDetail?returnId=64563>.

[27]Senate Standing Committee on Economics, Treasury Laws Amendment (Support for Small Business and Charities and Other Measures) Bill 2023, Report, November 2023.

[28]David Adams, ‘Senate votes for $30,000 instant asset write-off, expanded eligibility for SMEs’, SmartCompany, 27 March 2024, <https://www.smartcompany.com.au/finance/tax/senate-votes-for-30000-instant-asset-write-off-expanded-eligibility-for-smes/>.

[29]Australian Chamber of Commerce and Industry, Submission 10, p. 3.

[30]Mr Peter Grist, Director, Economics, Industry & Sustainability, Australian Chamber of Commerce and Industry, Committee Hansard, 24 July 2024, p. 20.

[31]Mr Peter Grist, Director, Economics, Industry & Sustainability, Australian Chamber of Commerce and Industry, Committee Hansard, 24 July 2024, p. 21.

[32]CPA Australia, Submission 1, p. 1.

[33]The Tax Institute, Submission 21, p. 6.

[34]The Tax Institute, Submission 21, p. 6.